Here's what you need to know...
Question # 1
How much can I comfortably afford?
Most people rely on mortgages when buying a home and one of the first questions that you should secure an answer to is how much of a mortgage you can really afford without stress. Lenders and banks will often qualify people using a standard debt to income ratio, but that isn’t always the best indicator of payment comfort. It also doesn’t leave any leeway for the unexpected. Things like a job layoff, a large unexpected repair, or an increase in taxes or insurance could cause a mortgage to become suddenly unaffordable if you are already maxed out.
While it may be tempting to stretch your buying power to the very tip-top of your pre-approval amount in order to secure your dream home, this usually isn’t a winning strategy.
Question # 2
Do I have the funds for repairs and maintenance?
Every home is unique, and every home comes with its own set of necessary repairs and maintenance expenses. Oftentimes, home shoppers only budget for immediate fixes and don’t take into account what will need to be spent over the years to keep their home functional, safe, and building equity. Things like a worn out roof, ancient plumbing, or an air conditioner unit that is on it’s last leg may stand out, but what about the myriad of little things? Peeling trim paint on a home, for example, may not seem like a deal breaker at the time of purchase, but hiring someone to scrape and paint that trim every few years adds up over time.
Because every house will have costs to maintain, be sure that you are prepared financially to handle upkeep.
Question # 3
What will the utility costs be?
Whether you are moving across the street or across the country, utility costs can greatly vary from house to house. Things like the size, layout, and quality of a home’s insulation can make a huge difference when it comes to heating and cooling a space. Other factors that can greatly impact utility costs include the energy efficiency of appliances and systems, the types of bulbs present in light fixtures, and the seal quality of windows and doors. Some sources of power and heat are also more expensive than others. In certain areas of Canada, a fully electric home is usually going to carry a higher monthly bill than a home that utilizes natural gas or propane for heat.
Asking the current owner for a copy of their utility bills can help you understand realistic expense expectations. There are also sites that help you compare energy rates and options that could be helpful for determining a utility budget.
Question # 4
Have I considered changes in outside costs?
Anytime you move there are costs outside of the home itself that usually need to be adjusted. Many people neglect to account for increases in these areas and then find out after the fact that their budget just doesn’t work. If you commute to work each day or take the kids to daycare or school, is the prospective new home further away, requiring more gas and vehicle maintenance each month? What about the availability of amenities? If you are accustomed to working out in a gym that is on site and included in the monthly cost of your current residence, moving to a home without this will likely have the added cost of a gym membership.
These are just a few examples of outside expense changes to plan and budget for.
A Strategy for Every Homeowner
Julia is a first time home buyer. She has spent the last four years saving her work bonuses toward a down payment. It is her dream to make the leap from renting to owning in the near future. She is still learning about the intricacies of home ownership and trying to budget for expenses that a landlord has typically covered in years past.
Meet Kevin & Tina
They bought their first home 6 years ago, but are now thinking about upgrading. They want to sell their smaller home and purchase a new one that is a little more spacious and that will accommodate their growing family. They have budgeted for a higher mortgage, but haven’t figured in increases in things like utility bills and higher property taxes.
Meet Regina & Charles
This couple has finally reached their retirement years and are now on the hunt for a forever home. They have bought and sold multiple properties over the years, and consider themselves pro homeowners. The older they get, though, the harder it is to do things around the house themselves. Maintenance is becoming a bigger ticket item than ever before, and some homes just require much more than others.
At Cleve Does More, we help clients who are buying homes at every stage of life. Each has their own unique situations and requires their own financial questions and strategies. Our goal is to help identify areas that need to be focused on now in order to be financially prepared for home ownership.